INVESTOR SENTIMENT AND STOCK MARKET VOLATILITY: UNVEILING THE CONNECTION THROUGH SURVEY INSIGHTS

This paper seeks to understand the interrelationship between investor sentiment and stock market fluctuations with a focus on its sub-components the market expectation, risk perception, confidence level in the market and investor behaviour. Investor sentiment as the independent variable is analyzed as to its total causal effect on stock market volatility with trading volume and stock market liquidity as the moderating variables. Using survey data, this study examines how changes in investors’ sentiment cause fluctuations, with trading activity and transaction squared which determines the strength and character of the relationship. The study gives the overall picture on how mood influenced elements spread throughout the market and intensify or dampen the fluctuations. The results generated provide the investors, analysts and the policymakers who intend to study the market or predict the market directions to a great extent aiming at strengthening the foundation of behavioral finance and monitoring the market stability. This research seeks to establish a relationship between investor behaviour and stock market returns with the objective of contributing to the body of literature in financial markets.